The Actual Online Money
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Everyone heard about cryptocurrencies (with other name digital currencies, virtual currencies, e-Cash) despite that a few know and understand what they are and how to profit from them. We will explain their essence shortly and easily here. You will find out whether you should care about them or miss nothing if you don't have some cryptocurrency in your eWallet.
Cryptocurrencies don't exist in physical form, and not a central authority issuing them. They use decentralized control. One can exchange real money, like US Dollars, on cryptocurrencies and vice-versa. Ownership data stored in a ledger record in a computerized database that is using strong cryptography to secure and verify transaction records and to control the creation of additional coins. Yes, you can create coins. This procedure is called mining. You will need a strong computer for this. Later on this page, we write about this in a little bit more detail.
The above mentioned decentralized control means that every single cryptocurrency operates through distributed ledger technology, usually a blockchain, that serves
as a public financial transaction database.
Blockchain means that every transaction creates a cryptographic code that consists of some part of former transaction codes, like a chain. This way, every new transaction can be traced back to the very first cryptocurrency transaction. Since every transaction contains parts of earlier created ones, it is not possible to alter, modify former records. The public nature of the blockchain ledger protects the integrity of every recorded data since not a single entity owns the database.
The most known cryptocurrency is called Bitcoin - in short, BTC.
Bitcoin came into existence in 2009. It is the first decentralized cryptocurrency. Since the release date of Bitcoin, over 6,000 altcoins (alternatives of Bitcoin) also have been created.
The name behind the development of Bitcoin is Satoshi Nakamoto. No one knows who this person (or group) is. The earliest Bitcoins created by Nakamoto are still untouched in an eWallet. Except for test transactions, as of March 2020, Nakamoto's coins remain unspent since 2009. At Bitcoin's price peak in December 2017, these coins were worth over $19 billion, making Nakamoto possibly the 44th wealthiest person in the world at the time.
In the Cryptocurrency World, the validation of transactions happens through mining. Mining is possible with powerful computers running for an extended time. For this job, successful miners get new cryptocurrency as a reward. As of July 2019, Bitcoin's electricity consumption was estimated to about 7 gigawatts, 0.2% of the global total, or equivalent to that of Switzerland. Big cryptocurrency miner companies move to countries where electricity price is low. Cryptocurrency mining increased the demand for good graphics cards (GPUs) as the computing power of GPUs makes them very useful for generating hashes (cryptographic code parts). Miners often buy up the entire stock of new GPUs as soon as they are available on the market. Because of this, Nvidia - a Graphics Card producer - has asked its retailers to do what they can when it comes to selling GPUs to gamers instead of miners.
A cryptocurrency wallet is a user account where public and private "keys" or "addresses" are stored. With the help of these, one can use the wallet to receive or spend the cryptocurrency. With the private key, it is possible to write in the public ledger, effectively spending the cryptocurrency. The public-key makes it possible for others to transfer currency to the wallet.
The cryptocurrency within a wallet is not connected to people but rather to specific keys (or "addresses"). Thereby, bitcoin owners can remain anonymous, they are not identifiable, but all transactions are publicly available in the blockchain. Regardless of these, cryptocurrency exchanges are often collecting the personal information of their users to comply with legal rules.
Customers can trade on Crypto-exchanges and on Trading Platforms, cryptocurrencies for other assets, such as conventional money, or trade between various digital currencies.
The price of cryptocurrencies fluctuates very much. Big drops and price rises happen. A lot of economists say cryptocurrency investment is a speculative bubble and will end up bad.
Our conclusion on cryptocurrencies
Well, it is everyone's own business what they think about cryptocurrencies. It is a fact there is nothing behind cryptocurrencies. Similar to gold. Gold is a shiny metal that we can use in microprocessors with a mind-made exceptional worth. The price of gold goes up and down, similarly to cryptocurrency prices, as demand grows and falls. We can say that cryptocurrencies are invisible gold. Gold is a rare metal. A cryptocurrency is not other than a unique character-line in a database. All of these have "high value". There are 6,000 different cryptocurrencies. Why exactly Bitcoin, Ethereum, Litecoin, and a few more became the most popular? There is not any particular reason for this. Some cryptocurrencies are popular because people chose these to be popular, and they had more publicity than others.
Cryptocurrencies are also similar to fashion. What is fashion? After all, it is just an idea that is followed by society without real reason, just because others follow it too. No one wants to drop out of the trend.
Does the knowledge that cryptocurrencies might be a speculative bubble prevent someone from investing in it? It depends. Well, it might be a bubble. Would you invest in it during a rapid growth period, when you expect it to explode sometimes later in the future after you already sold your coins? If you would invest in it anyway, you are not the only one. Cryptocurrency owners all have the same hopes. They want to gain a good profit on it before it ends.
How to profit from cryptocurrencies?
There are a lot of scams trying to convince people to invest in cryptocurrencies at shady trading platforms. To help you avoid these and choose trustworthy websites, we have collected here the legitimate ways one can profit from cryptocurrencies. Please note, even legit companies can collapse eventually or get robbed by hackers. Anonymity, encryption, and decentralized control are the nature of cryptocurrencies. Think over twice where you invest and how much. If the trader or crypto-company you choose to deal with happens to be the wrong one, you might lose on the business. There will be no authority behind to track the events, so you can run after your money alone. Study the cryptocurrency topic in-depth and collect useful information. Use, for example, the website of "Bitcointalk" to discover new cryptocurrencies, read information and news. You can engage in discussions with developers and fellow investors there.
Long-term Investment in Cryptocurrencies
Buy it and wait till the price goes up.
Some buy and sell cryptocurrency daily for a smaller profit, while others don't like trading. Some people only wish to get very lucky one day. They buy cryptocurrency once and wait for a miraculous jump in price as it has happened sometimes with Bitcoin. We all know stories about those lucky people who bought Bitcoins at the time of its launch for pennies and sold it some years later for millions.
A similar story happened to us. We bought Bitcoins many years ago for a low price. The truth is that we would have already sold it for a little bit higher price, but something happened. The trader company where we kept our Bitcoins - the MtGox - went into bankruptcy in 2014 because someone has stolen Bitcoins from them, worth millions. One could say, what an unlucky turn of the story! Since 2014 there is a proceeding against MtGox with 24,750 approved claimants. This process goes on the Japanese court and seems never-ending. From time-to-time, there are statements from the court that the claimants can get back a little fraction, like 15% of their lost Bitcoins soon. We hear this "soon" for years. Many claimants have already surrendered to the fact that they might never see their money back.
But guess what, there is a twist in the story! During the lengthy court procedure of MtGox, the market price of Bitcoin rose from around $483 to $20,000 at times. At the moment, the price is around $10,000 per Bitcoins. It means that if the court finally orders to pay 15% of the lost Bitcoins back to the rightful owners, the claimants can get a good profit. Someone who bought one Bitcoin for $483 in 2014 and has a valid claim that promises to pay back 15% of lost coins, that means 0.15 Bitcoin. At today's price 0.15 Bitcoin worth $1500, which is about three times the invested $483.
As there is no final decision from the court in the MtGox case, they still have not ordered to pay creditors. However, some companies already offer to buy creditors' claims for 70% of their worth. Using the example above, people that bought 1 Bitcoin for $483 in 2014 would get $1,500 now if the court proceedings had finished. Those who can not wait for the case to finally end, they can sell their claim for 70%. That means $1,050 per Bitcoin, for sure.
Considering that some companies would buy these claims suggest that they trust the court proceedings will be successful, and Bitcoin will exist for a longer time. This way, they make a 30% profit right away. But why would they store their money in Bitcoin claims? Probably they expect a Bitcoin price rise and gain much more than 30% on the business.
If these big companies believe Bitcoin price will rise, that is a positive sign for others who are thinking of investing in it too.
For long term investment purposes, we advise you BitStamp, Coinbase, Binance, or CEX as trustworthy cryptocurrency exchanges, or you can invest in cryptocurrencies at eToro. Read our review about eToro on our Trading Platforms page.
Daytrading of Cryptocurrencies
If you wouldn't like to wait a long time till your cryptocurrency worths more, you can start daytrade with it. Buy and sell often as price goes up and down. For this, you need to open an account at a cryptocurrency trader and analyze charts, follow the price fluctuations daily.
For day trading with cryptocurrencies, we advise you to sign-up on the websites of eToro, Coinbase, or Binance and download their trading apps. These are quite well-regulated crypto-exchanges and trading platforms. EToro has a clean interface, is easy to manage, and can copy the purchases and sales of other users. After registration, you can also practice on a demo account.
Another quite right and free choice is the MetaTrader application with its plenty of functions and settings. It refreshes the data and graphs in every second. Keep it in mind, though, that in one second, the prices can make big jumps up and down.
Some more trading applications that are free and comparatively easy to use are Blockfolio, Coinfolio, and CoinCap. Paid day trading platforms cost thousands of dollars, but they track data in seconds and milliseconds.
Day trading with cryptocurrencies is essentially the same as Forex trading.
We advise you to start day trading in small and only if you know what you are doing. For most people, the long time investment is a better thing to do with cryptocurrencies.
Work for a Cryptocurrency Company
You might think that you will work on one of the 6,000 altcoin companies' everyday duties to maintain their website, etc. It isn't a real achievable plan. Companies that call themselves cryptocurrency companies will only offer you micro-tasks like questionnaires that you could do without them too. Visit our Questionnaires page to read more about this online income earning method.
The crypto-companies usually pay you in cryptocurrencies, hence their name. It is not a bad thing until you can exchange those coins with real money.
The so-called cryptocurrency faucets are similar to these companies. You have to solve some tasks to receive some small amount of crypto money. But why would one work for a company like these when you can do micro-tasks without a middleman company too?
Cryptocurrency traders have their prices for buying and selling coins. If you have accounts at multiple traders, you can take advantage of their price differences. Buy at a trader where the selling price is lower and sell it at the other where the buying price is higher. This way, you can make a few percent of profits.
As it is visible, most of the methods one can profit from cryptocurrencies are the results of the ever-changing exchange rates. For this reason, it is worth taking a look at the topic of cryptocurrency price changes.
What are the reasons behind a price change?
- One of the basic rules of the economy is that if something has a scarce supply and high demand, its value will increase. It is the truth, for cryptocurrencies too.
- New features, developments, and announcements can cause huge buying waves, which result in rising coin prices.
- The bad news about shut-down or bankruptcy of crypto-exchanges, coin-thefts, new regulations can lower the demand for cryptocurrencies.
- Cryptocurrency reaches certain life-stages, roadmap deadlines, and targets. It increases trust and generates demand for the given cryptocurrency. Therefore its price will rise too.
- If a cryptocurrency gets included in the portfolio of a well-known exchange, it gets more publicity. As a result, its price will go up.
- Market players with significant capital can manipulate the exchange rates by initiating transfers of huge sums.
- Well managed adverts, influencers, and hype around a cryptocurrency can make it more popular and convince people to invest in it. It results in growing prices.
- Real-world use, like crypto-cash machines or companies that adopt and accept a cryptocurrency as a payment method at them, will reduce supply and increase demand.